Day: September 16, 2024

(Bloomberg) — A gauge of Chinese stocks listed in Hong Kong swung to a gain in volatile trading as investors debated whether weaker macro data will prompt the government to bolster stimulus.

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The Hang Seng China Enterprises Index closed up 0.3% after earlier sliding as much as 1.3%. Property shares were among the biggest decliners, with a gauge of the sector dropping as much as 1.8%, while utility stocks rose. Mainland markets are shut until Wednesday for holidays.

Disappointing economic data over the weekend is adding pressure on the authorities to ramp up fiscal and monetary stimulus if the nation is to reach this year’s growth target. As deflation gets entrenched, investors are hoping the government will boost fiscal spending and or even try to directly help the consumer.

“Support from fiscal policy, which has lagged throughout 2024, could step up,” Wei He, an economist at Gavekal Research, wrote in a client note. “The government will probably introduce some additional stimulus measures in coming months.”

“Still, those measures are unlikely to convince market participants that nominal growth prospects are improving,” he said.

Failure to achieve the annual growth target may further undermine investor confidence, with overseas funds already pulling a record amount of money out of the country in the second quarter. A rebound in the nation’s equities earlier this year has lost momentum, with the CSI 300 Index closing at its lowest since 2019 last week. Declines may increase in absence of a forceful stimulus.

China’s central bank indicated late last week that it will step up its fight against deflation and prepare additional policies to revive the economy, after credit data showed private confidence remained weak despite previous interest-rate cuts. The nation is poised to cut interest rates on more than $5 trillion of outstanding mortgages as early as this month in a bid to spur consumption, Bloomberg News reported last week, citing people familiar with the matter.

“The recent Chinese economic data paints a grim picture, with key indicators missing expectations and signaling heightened uncertainty for China equities,” said Manish Bhargava, chief executive officer at Straits Investment Management.

While aggressive stimulus may offer a short-term boost to equities, the authorities’ incremental measures to date have raised “doubts about the potential scale and effectiveness of future intervention,” he said.

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Macro conditions in China have now turned so weak they are challenging the argument about owning Chinese equities due to their ultra-cheap valuations. The HSCEI currently trades at 7.1 times its 12-month forward earnings estimate, compared with its five-year average of 8.4 times, according to data compiled by Bloomberg.

Valuations look tempting, but “when you look at macro, it is not there,” Ecaterina Bigos, chief investment officer for Asia excluding Japan at AXA Investment Managers, said in a Bloomberg TV interview. “Macro elements are very weak across the board.”

Concern over slowing economic growth has seen investors pile into the nation’s sovereign debt, pushing 10-year yields to the lowest level since Bloomberg began tracking the data more than 20 years ago. Analysts have called for strong stimulus measures to help break this cycle.

Policymakers have a window to loosen monetary policy this month when the medium-term lending facility rate and liquidity decision both come due. All but two analysts surveyed by Bloomberg predict the central bank will keep the one-year policy rate at 2.3%, though some see a potential reduction in the reserve requirement ratio.

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Stocks managed to secure solid wins ahead of a critical monetary policy decision from the Federal Reserve, which has investors on edge over how aggressively the central bank will bring down interest rates.

The tech-heavy Nasdaq Composite (^IXIC) led markets higher to nab its best week of the year, up about 6%. That weekly best was echoed by the benchmark S&P 500 (^GSPC), which saw an uptick of 4% as both gauges notched their fifth straight day of gains on Friday. The Dow Jones Industrial Average (^DJI) also ended the week in the green, up around 3%.

The positive swings come as traders have flip-flopped on whether the Federal Reserve will cut rates by 25 basis points or opt for a more robust 50 basis point cut at the end of its two-day policy meeting on Wednesday. No matter the size, it will be the first rate cut from the Fed since early 2020.

Former New York Fed president Bill Dudley said there’s a “strong case” for a deeper cut as FOMC members attempt to maneuver a “soft landing” of the economy. That, along with reports from the Financial Times and the Wall Street Journal that suggested policymakers were struggling to come to a decision, have fueled expectations for a jumbo rate cut.

Outside of the Fed decision, investors will also be monitoring the health of the consumer, with retail sales for the month of August on the docket for Tuesday. The housing market will also be top of mind after mortgage rates dropped to their lowest level since February 2023.

A weekly update on jobless claims is also on the schedule, as well as activity checks from the manufacturing sector.

In corporate news, quarterly reports from FedEx (FDX), General Mills (GIS), Lennar Corporation (LEN), and Darden Restaurants (DRI) will headline the earnings calendar.

FedEx will be in particular focus, as earnings from the delivery conglomerate are often viewed as a bellwether for the state of the broader US economy.

The Fed’s big decision

The Fed will announce its next monetary policy decision on Wednesday. Markets are largely split on whether the central bank will cut rates by 25 basis points to a range of 5.0% to 5.25% or by 50 basis points to a range of 4.75% to 5.0%.

Friday saw a significant jump in expectations for a 50 basis point cut, according to the CME FedWatch Tool. As of Friday afternoon, traders had placed a roughly 49% probability policymakers would commit to that larger rate cut, compared to just a 28% chance one day prior.

There’s a case to be made for both. On the one hand, inflation has remained above the Federal Reserve’s 2% target on an annual basis with hotter-than-expected readings on monthly “core” inflation suggesting the Fed should err on the side of caution and cut by just 25 basis points.

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“With core inflation coming in higher than expected, the Fed’s path to a 50 basis point cut has become more complicated,” Seema Shah, chief global strategist at Principal Asset Management, wrote following Wednesday’s CPI report for the month of August.

“The number is certainly not an obstacle to policy action next week, but the hawks on the committee will likely seize on [the] CPI report as evidence that the last mile of inflation needs to be handled with care and caution — a formidable reason to default to a 25 basis points reduction.”

But other economic data points, including a jobs report that indicated a weakening labor market, suggest the central bank may already be behind the curve.

“We believe what the Fed should do next week is clear: recalibrate the policy rate 50bp lower to adjust for the shifting balance of risks,” JPMorgan economist Michael Feroli wrote in a note to clients on Friday. “What the FOMC will do is less clear, but we’re sticking with our call that they will do the ‘right’ thing and cut 50bp.”

Along with its policy announcement, the Fed will also release updated economic forecasts in its Summary of Economic Projections (SEP), including its “dot plot,” which maps out policymakers’ expectations for where interest rates could be headed in the future.

In June, Fed officials saw the fed funds rate peaking at 5.1% in 2024, suggesting just one 25 basis point cut to come this year. But the narrative has shifted quite considerably since that time. And with markets now pricing in 100 basis points’ worth of cuts through the end of 2024, Wednesday’s dot plot will show investors whether or not central bank leaders agree.

“Our baseline still assumes 25bp cuts at every other meeting, but the odds of a faster pace has increased given the Fed’s goal to prevent more weakness in the labor market,” Oxford Economics lead US economist Nancy Vanden Houten wrote on Friday.

Overall, stocks could turn volatile no matter which direction the Fed takes. That makes Fed Chair Jerome Powell’s post-decision press conference all the more important.

“Powell’s task at 2:30pm next Wednesday will very much depend on what the Committee chooses to do at 2:00pm,” Feroli said. “If it decides to cut 50bp, Powell will need to convey that the action is intended to support the outlook for sustained expansion in an environment of low inflation. If instead the FOMC opts for a 25bp cut he will need to indicate that the Fed stands ready to ease more aggressively on any sign of labor market softness.”

Consumer check

A fresh reading on retail sales will also be closely tracked on Tuesday as investors wait to see whether or not July’s robust rebound in sales can be sustained.

Economists expect that retail sales declined 0.2% in August from the prior month, which would mark a significant deceleration from the 1% sales growth surprise seen in July. Excluding gas and autos, expectations are for a 0.3% increase.

“The already-reported decline in vehicle sales will weigh on headline retail sales in August, but we anticipate a modest increase in core and control group sales, which will keep real consumption on track for a small gain in August,” Oxford Economics’ Vanden Houten said. “Real disposable incomes growth is proving resilient, and high-frequency indicators suggest consumer spending is continuing to steadily rise.”

She added, “There are still no signs that weakening in the jobs market is feeding through to slower growth in consumer spending.”

Weekly calendar

Monday

Economic data: Empire Manufacturing, September (-3.7 expected, -4.7 prior)

Earnings: No notable earnings

Tuesday:

Economic data: Retail sales, month over month, August (-0.2% expected, +1% previously); Retail sales ex-auto and gas, August (+0.3% expected, +0.4% previously); Industrial production, month over month, August (0.2% expected, -0.6% previously); Manufacturing (SIC) production, August (0.0% expected, -0.3% previously); NAHB Housing Market Index, September (41 expected, 39 previously)

Earnings: Ferguson Enterprises (FERG)

Wednesday

Economic data: Federal Reserve monetary policy decision (expected interest rate cut to range of 5.0% to 5.25% from range of 5.25% to 5.5%); MBA Mortgage Applications, week ending Sept. 13 (1.4% previously); Building permits month over month, August (+1.1% expected, -3.3% previously); Housing starts month over month, August (+5.8% expected, -6.8% previously)

Earnings: General Mills (GIS), Steelcase (SCS)

Thursday

Economic data: Initial jobless claims, week ending Sept. 14 (230,000 previously); Continuing claims, week ending Sept. 7 (1.85 million previously); Existing home sales month over month, August (-1.3% expected, 1.3% previously)

Earnings: FedEx (FDX), Lennar (LEN), Darden Restaurants (DRI), FactSet Research (FDS), Cracker Barrel (CBRL), Endava (DAVA), MillerKnoll (MLKN)

Friday

Economic data: No notable economic releases.

Earnings: Tamboran Resources Corporation (TBN)

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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(Bloomberg) — The dollar weakened and bonds rose as traders prepared for the Federal Reserve to reduce interest rates, with the market divided on how big this week’s cut will be.

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Bloomberg’s dollar index slipped to the lowest in more than eight months, while expectations of a narrowing rate differential between the US and Japan boosted the yen. Treasuries extended their gains, with the yield on the policy-sensitive two-year note falling to the lowest since September 2022.

Stocks kicked off a crucial few days with muted moves, as S&P 500 futures kept to a narrow range. Apple Inc. dragged tech shares lower in the premarket as some analysis of iPhone 16 pre-orders suggested weaker demand. There was little reaction in markets to the news of a second assassination attempt on former President Donald Trump.

The start of a long-anticipated US easing cycle takes center stage this week, part of a 36-hour monetary roller coaster that includes policy decisions in Brazil, South Africa the UK and Japan. It’s come down to a virtual coin toss for traders on whether the Fed will go for a 25 or 50 basis-point cut.

“There has rarely been so much uncertainty over central bank intentions,” analysts at Edmond de Rothschild wrote in a note. “They are caught between signs of economic weakness and inflation which is stubbornly resisting a return to the 2% target.”

For Joyce Chang, chair of global research at JPMorgan, the Fed has scope to make the bigger move and doing more now would probably send the right signal.

“We are still sticking with a 50 basis-point call, but it is a debate, internally and within the broader market,” Chang said on Bloomberg TV. “When I talk to investors, 25 versus 50 isn’t so much the debate, but really how does the US growth story look.”

That view was echoed by top Wall Street strategists, who suggested that the health of the US economy could have more bearing on stocks than the size of the Fed’s rate cut.

“If the labor data weaken from here, markets can trade with a risk-off tone regardless of whether the Fed’s first move is 25 or 50 basis points,” Morgan Stanley’s Mike Wilson wrote in a note. On the other hand, if jobs were to strengthen, a series of 25 basis-point reductions into mid-2025 could prop up equity valuations further, he said.

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Forecasters at Goldman Sachs Group Inc. and JPMorgan Chase & Co. also warned that rates alone were less important for stocks, given the uncertain outlook for the economy.

The Bank of Japan, meanwhile, is expected to keep rates on hold after roiling global financial markets with an increase at its last meeting.

“The communication from the BOJ will be critical to let market participants know exactly, as clear as they can be, what the next move and the particular timings of the next moves will be,” Katrina Ell, director of economic research Moody’s Analytics, told Bloomberg Television.

Trump is safe after his Secret Service detail opened fire at a man who was wielding an assault rifle at his West Palm Beach, Florida, golf course Sunday, in what the Federal Bureau of Investigation called an apparent assassination attempt.

According to law enforcement officials, Secret Service officers clearing the golf course ahead of Trump spotted a man in the woods with a gun. The suspect — later identified as 58-year-old Ryan Routh, according to federal officials who requested anonymity to discuss an ongoing investigation — fled in a black car but was later detained after a chase.

In Asia, a string of poor Chinese data left traders wondering if authorities would initiate forceful stimulus to buttress the economy. Factory output, consumption and investment all slowed more than forecast for August, while the jobless rate unexpectedly hit a six-month high.

Markets in Japan, South Korea and mainland China were closed for a holiday.

In commodities, gold rose to a fresh record high as markets waited for the Fed easing. Elsewhere, oil steadied after its first weekly gain in a month as a drop in Libyan exports was offset by China’s economic woes.

Key events this week:

• ECB speakers including Vice President Luis de Guindos and chief economist Philip Lane, Monday

• US empire manufacturing, Monday

• Singapore trade, Tuesday

• Federal Reserve begins two-day meeting, Tuesday

• US business inventories, industrial production, retail sales, Tuesday

• Canada CPI, Tuesday

• Indonesia rate decision, Wednesday

• South Africa retail sales, CPI, Wednesday

• UK CPI, Wednesday

• Eurozone CPI, Wednesday

• US rate decision, Wednesday

• Brazil rate decision, Wednesday

• Australia unemployment, Thursday

• New Zealand GDP, Thursday

• Taiwan rate decision, Thursday

• Norway rate decision, Thursday

• UK rate decision, Thursday

• South Africa rate decision, Thursday

• China loan prime rates, Friday

• Japan CPI, interest rate decision, Friday

• ECB President Christine Lagarde speaks, Friday

• Bank of Canada Governor Tiff Macklem speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 7:34 a.m. New York time

• Nasdaq 100 futures fell 0.4%

• Futures on the Dow Jones Industrial Average rose 0.2%

• The Stoxx Europe 600 was little changed

• The MSCI World Index was little changed

Currencies

• The Bloomberg Dollar Spot Index fell 0.3%

• The euro rose 0.4% to $1.1122

• The British pound rose 0.6% to $1.3197

• The Japanese yen rose 0.5% to 140.09 per dollar

Cryptocurrencies

• Bitcoin fell 1.8% to $58,740.14

• Ether fell 2.4% to $2,306.92

Bonds

• The yield on 10-year Treasuries was little changed at 3.64%

• Germany’s 10-year yield was little changed at 2.14%

• Britain’s 10-year yield was little changed at 3.77%

Commodities

• West Texas Intermediate crude rose 1% to $69.36 a barrel

• Spot gold rose 0.1% to $2,581.42 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Matthew Burgess, Sujata Rao, Catherine Bosley and Sagarika Jaisinghani.

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Choosing your Social Security filing age is perhaps the most important retirement decision you’ll make, as it can affect your benefit amount by hundreds of dollars per month.

You can begin claiming as early as age 62, but that comes at a steep price: a permanent benefit reduction of up to 30%. Waiting until age 70 will earn you the maximum possible payments based on your work history, with a bonus of at least 24% on top of your full benefit.

Despite the reduction in benefits, 62 is one of the most popular filing ages. According to 2023 data from the Social Security Administration, roughly one-quarter of both men and women file at 62, while fewer than one in 10 wait until age 70.

When it comes to the ideal age to take Social Security, though, the data is clear: Age 70 is far and away the best time for the majority of retirees. While the data is compelling, here’s why that may not be the best move for your retirement.

Research shows filing at 70 is a no-brainer

Taking Social Security benefits at age 70 can maximize your monthly income, sometimes increasing your benefit amount by several hundred dollars per month. But for most older adults, it can maximize your lifetime income, too.

In a 2019 report from United Income, researchers used data from the Social Security Administration to examine retirees’ claiming decisions and how those decisions affected their lifetime income. They then determined how many retirees made the ideal claiming choice to maximize their income and at what age older adults should file to earn as much as possible.

They found that claiming before age 64 is the ideal choice for only 6.5% of retirees, while a whopping 57% could have earned more in total by filing at age 70. Furthermore, filing at a less-than-optimal age costs the average retired household around $111,000 in total income over a lifetime.

A separate, similar study from the National Bureau of Economic Research found that a staggering 99.4% of retired households could maximize their lifetime income by waiting until at least age 65 to file, while 91.6% would be best off financially by claiming at age 70.

Additionally, the study revealed that for those aged 55 to 62, specifically, claiming Social Security at the financially optimal age could result in lifetime gains of around $181,623.

When it pays to take benefits sooner

The data may be clear that taking benefits at 70 can maximize your total lifetime income. However, finances are only one part of the equation when it comes to deciding on a filing age. Other factors, like health and marital status, can play an equally important role in this decision.

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If your health takes a turn for the worse in your 70s, filing for benefits sooner could give you more time to enjoy retirement. Nobody can predict the future, of course, but life can throw curveballs in an instant. Filing early will reduce your monthly payments, but it could also help you make the most of every moment in case the unthinkable happens.

Also, if you’re married to someone who is also entitled to Social Security, it can be a good idea to coordinate your claiming ages. For example, one person may wait until age 70 to earn the maximum payment, while the other files at 62 to make it a little more affordable to retire early.

Finally, filing early can be a smart option if you’re on the fence about when to claim. If you change your mind within 12 months of taking benefits, you can withdraw your application and file again later. But if you delay benefits from the start and regret your decision, you can’t go back in time for a do-over.

No matter your situation, finances will play only one part in your decision. If your primary goal is to earn as much as possible in retirement, delaying claiming until age 70 is likely your best bet. But if you’re aiming to retire earlier for health reasons or otherwise, it sometimes pays to file early. You may need to make some financial sacrifices, but there’s more to retirement than just money.

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If you’re like most Americans, you’re a few years (or more) behind on your retirement savings. But a handful of little-known “Social Security secrets” could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more… each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we’re all after. Simply click here to discover how to learn more about these strategies.

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Research Shows Most People Should Take Social Security at 70. Here’s Why That May Not Be the Best Move. was originally published by The Motley Fool

The S&P 500 has delivered outstanding returns over the last year and is currently up around 23%. However, the index has returned an average annual return of about 10% going back decades, so if you want to find market-beating stocks, you need to look for companies that can sustain high double-digit growth for several years.

The artificial intelligence (AI) market is a promising field to look for growth stocks. Statista estimates spending on AI technology to increase from $184 billion this year to $826 billion by 2030.

Here are two AI stocks that have crushed the S&P 500 over the last year and can outpace the index through the end of the decade.

1. Palantir Technologies

Shares of Palantir Technologies (NYSE: PLTR) have soared to new highs as the AI software provider reported accelerating growth this year. The company has primarily depended on government deals. However, it’s starting to see an increasing number of corporations invest in its software, which could catapult the stock to market-crushing returns over the next six years.

In the second quarter, Palantir reported a robust 27% year-over-year increase in total revenue. The company closed 10 deals worth more than $10 million. These results are impressive, considering the headwinds many software companies are experiencing this year due to tightening enterprise spending.

Companies seem to be prioritizing investment in AI. After using Palantir, these companies are seeing positive returns, such as faster completion of tasks and better price optimization for products, which can help a business boost profit margins.

An important advantage for Palantir is the use of its software engineers as part of the sales process. The engineers work with customers to set up the software and show them ways to get more out of it. This gives Palantir an enormous advantage in driving higher sales from customers.

Palantir’s high-margin software business should create outstanding shareholder returns in the coming years. Wall Street analysts are projecting Palantir’s annualized earnings to grow 85% over the next five years, which implies a substantial increase in the company’s margins. There will be ups and downs, but investors should expect Palantir stock to at least double in value from current share prices by 2030 and outperform the market averages.

2. Nvidia

Nvidia (NASDAQ: NVDA) is estimated to control at least 70% of the AI chip market. It has long dominated the market for graphics processing units (GPUs), which have the processing bandwidth to handle the demands of AI training. Nvidia’s lead in GPUs has translated to phenomenal returns for shareholders in recent years as companies continue to invest in building more data centers.

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Nvidia’s data center revenue more than doubled year over year last quarter to $26 billion, and the expanding opportunities beyond the U.S. should allow the company to maintain its momentum into next year. While it prepares to launch the next-generation Blackwell AI computing platform, management also continues to emphasize the burgeoning opportunity to supply AI infrastructure for countries worldwide.

Foreign nations want to use their own language and culture with generative AI tools, and they are turning to Nvidia to help them build the infrastructure to make this happen. For example, Japan’s National Institute of Advanced Industrial Science and Technology uses thousands of Nvidia H200 GPUs for its AI Bridging Cloud Infrastructure 3.0 supercomputer.

While Nvidia continues to cash in on the enterprise wave, sovereign AI infrastructure could be the next tidal wave that creates significant growth opportunities for the GPU leader. Management believes its sovereign AI business will surpass $10 billion this year.

Nvidia’s share price has soared 160% over the last year, but that has been completely driven by its data center growth. The stock still trades at an attractive forward price-to-earnings ratio of 29 using next year’s consensus earnings estimates. With analysts forecasting annualized earnings growth of 52% over the next five years, Nvidia stock could significantly outpace the return of the average stock.

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John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.

2 AI Stocks That Can Crush the S&P 500 Through 2030 was originally published by The Motley Fool